Entrepreneurs Eagerly Await Real-Time Payments For Payroll

Paychecks can be confusing for employees — and often wrong. Understanding how much you’re being paid, and how much goes to taxes, can be easily misunderstood. According to The Workforce Institute at Kronos, most Americans have experienced some type of problem with their paycheck. More than a quarter said they were paid too little, and 15 percent said they’ve received a paycheck late.

So, if paychecks are confusing for employees, consider how much more complex they may seem to a small business (SMB) owner who has spent his or her entire professional life on the receiving end of payroll.

Shrad Rao, CEO of payroll startup Wagepoint, says small business owners that suddenly find themselves in charge of payroll struggle to acclimate quickly to a process that can be complex and confusing.

“Payroll itself is a pain point” for small businesses, he recently told PYMNTS. “There are so many regulations to keep track of. You have to figure it out on the fly. If you think about it, we usually start out as people who get paid by someone else — that’s just one side of the coin. The other side is that someone is doing the paying.”

Small business owners, on top of other responsibilities, have to quickly get acquire payroll to retain talent and remain tax compliant. But payroll, Rao added, “is a subject matter that is not inherently intuitive.”

In the U.S. and Canada, where payroll and tax rules can easily trip up business owners, there aren’t many options designed specifically for the small business, Rao said. As with so many other areas of small business finance, payroll becomes a manual, time-consuming task for many entrepreneurs, the CEO explained.

Rao estimated that about a third of the new customers coming to Wagepoint rely on manual processes but are in search of a more automated solution. These tools mean mistakes are easily made, he said, especially as wage and tax rules continually evolve.

Keeping up to date with these legislative changes is another challenge. The Workforce Institute also found, in a separate report, that businesses spend up to $100,000 every time a labor-related regulation changes, with expenses linked to legal counseling and new training for HR and payroll employees.

But accurate calculation of the paycheck is only one side of payroll, said Rao. The other is the actual movement of money, and a significant portion of SMBs are still reliant on cutting paper checks to compensate employees.

“Payroll is a combination of math and moving money,” the CEO noted.

ACH has become instrumental in streamlining that movement of money via direct deposit, but, according to Rao, employees and their employers want ACH to go further.

“That’s probably the number one request we get, when we’re asked, ‘Is there anything you can do about turnaround time of ACH?’” he said. “It’s out of our control, so we cannot wait for real-time payments to come into effect in the U.S. and Canada.”

The CEO said real-time payment initiatives may be the number one financial services initiative impacting the payroll industry, as it will provide for real-time visibility into cash positions and cash flow. The movement of funds via payroll has also opened up the market to opportunities in the area of data analytics, Rao said, adding that Wagepoint’s integration with QuickBooks Online in Canada signals the importance of integration of data from payroll to accounting. The company recently rolled out QuickBooks Advanced Payroll powered by Wagepoint and is also working on developing HR apps similarly built to integrate with payroll.

Earlier this week, Wagepoint announced $2 million in revenue financing from TIMIA Capital Corporation, the funds of which will be used to scale and to focus on product development like those apps.

As small business owners demand easier, more automated payroll solutions, entrepreneurs are certainly at the center of innovative progress in this space. But Rao also noted that employees themselves are finding their voice and, moving forward, will have a larger role in guiding the direction of the payroll industry.

“Employees will have more control over their payroll than they did before,” he said, adding that Wagepoint previously allowed its clients to enable employee compensation in bitcoin (a feature that had to be shut down after bitcoin trading platform Buttercoin, which Wagepoint used, shut down). Other payroll tech companies, like Bitwage, have integrated bitcoin payment capabilities into their offerings, while some firms, including Japanese internet company GMO Internet Group, have taken steps to offer their employees wages in the form of bitcoin.

Rao said these cases are all reflective of a broader trend of employees demanding choice in how they get paid.

“It’s about giving employees more choices in where they deposit their money, and that trend is going to continue,” he said. “Employees have more say in things like that.”